“A tree is a tree. How many more do you have to look at?” So said Ronald Reagan. With only a few weeks to go before the introduction of stakeholder, the industry will be hoping for a brighter response. To what extent can educating the public circumvent the need for advice?
Certainly the Financial Services Consumer Panel remains unconvinced that it can deliver what the regulator wants – at least as far as products such as stakeholder are concerned.
In a strongly worded response to the FSA's consultation paper on decision trees, the panel says it is concerned that too much reliance is being placed on consumer education as a regulatory tool.
This issue goes to the very heart of independent financial advice.
As IFAs know only too well, the 1 per cent cap on stakeholder charges has left advice dangling as a cost option. But stakeholder is being launched ahead of the education initiatives to boost financial literacy.
The formulation of decision trees, designated as information vehicles rather than depositories of advice, allows for the direct selling of stakeholder. The FSA insistence that the trees are not a substitute for advice has been met with suspicion.
Scottish Equitable manager of pensions development Margaret Craig speaks for many in the industry when she says that it would have been very positive if the cost of advice could have been factored into stakeholder and that the 1 per cent charge cap makes the inclusion of advice difficult.
But IFAs and providers are having to deal with the reality.
Craig says there is a general misapprehension on the purpose of decision trees. “They are designed to give information not advice and, while the industry is aware of this, the consumer might not understand,” she says.
As advice risks becoming a casualty in the attempt to keep costs down, the spotlight is firmly on decision trees.
The worries of the panel and product providers are echoed by others in the industry. Will consumers be able to see the wood for the trees? And where are IFAs left?
As reported in Money Marketing (March 1), the FSA has said that an IFA whose provider takes a client through a decision tree could fall foul of the indirect benefit rule.
This has met with a furious response from advisers. Aifa director general Paul Smee has written to the FSA, which has said it will consider any alternative that may be put forward.
Smee writes: “The FSA has been consistent in its approach that taking someone through a decision tree does not constitute advice and that the onus of responsibility rests with the consumer after reaching an outcome from a decision tree.”
He points out that the logic of why this should be considered an indirect benefit is not clear.
But the FSA remains concerned that IFAs could be biased to those providers which do offer tree-walking services.
If things stand as they are, IFAs are going to have to play safe. Roberts Clark director Jo Roberts says she would be forced to write to providers to ask them not to take her clients through decision trees. She says she has tried to make her service as cost-effective as possible but this move by the FSA could force her to consider charging a fee.
Roberts also points to the deeper conceptual problem: “It is possible that someone who has pursued an appropriate route through a decision tree might construe that as advice about the appropriate action to take.”
Clerical Medical pens-ions strategy manager Nigel Stammers says there are two further dangers with decision trees. The first is that a little knowledge is a dangerous thing, leading people to jump into something that might not be appropriate.
He says: “The second is that decision trees, however carefully drafted, will still lead to people being turned off by their complexity.”
The best thing that could result from the decision trees, says Stammers, is that prospective consumers are driven to get advice.
The decision trees fudge the issue, containing these lines. “You should consider getting advice if you are not sure that saving in a pension plan is right for you or if you want to look at other ways of saving and investing for the long term. If you are not sure what is the best thing for you to do, get help. The decision trees suggest some organisations that might be able to help you.”
The FSA's policy document on decision trees recognises that the regulatory distinction between information and advice might not be readily understood by customers. It also accepts that stakeholder is part of a complex market for pension provision.
In any case, questions of specific awareness need to be set against the general low-level awareness of stakeholder. Recent research commissioned by Marks & Spencer Financial Services showed that three-quarters of the population were unaware of stakeholder pensions. And the irony of the present situation is that people need advice about getting advice.
The FSA further accepts the consumer panel's observation that education is not a panacea. These theoretical concessions will need to lead to a conceptual clearing in the forest.
Oxford University statistician Claus Moser once said: “Education costs money but then so does ignorance.” And, IFAs might add, so does advice.